Analyst tips back to back rate rises

[danielkanoon]

For last few weeks there has been a lot of speculation that the Reserve Bank may raise interest rates as early as November. Now the latest reports are saying that another rise could follow in December as it seeks to keep a lid on inflation.

Who's else besides myself is anticipating the same thing, because I really think that this is more then likely to occur?

 

[blaster]

For last few weeks there has been a lot of speculation that the Reserve Bank may raise interest rates as early as November. Now the latest reports are saying that another rise could follow in December as it seeks to keep a lid on inflation.

Who's else besides myself is anticipating the same thing, because I really think that this is more then likely to occur?

Me ! I think we'll easy see two b4 xmas , they're sounding the drums .

Cheers

 

[craigb]

yep- i hear the drums "fernando" Gee! showing my age now. But i hope we are wrong, i think the figs are showing the last hand outs.

 

[Snort]

I'll go with a conspiracy theory...

Rudd is going around saying 'Interest Rates are going to rise!' in an effort to move the general variable population into fixing their IR and, if enough do the reserve will keep the IR at the current level.

 

[buzzlightyear]

On your bike

If you haven't moved your rents in line with what the market is paying, then this news and what seems inevitable interest rate increase(s), should prompt you into action.

 

[Rolf Latham]

Overheated economy and gov funded job creation programmes ?

Sounds like Cubanese to me, but what do I know.

The AUD will get close to parity for a little while if we get 2 quick rises, heaven help you if you are in export and not digging stuff out of the ground. In turn, plasmas will be cheaper once again so we can get more of the gov support shipped offshore

The banks would love to raise rates independently to increase their margins a little because for the most part their mortgages are only doing 20 % +_ ROI

ta
rolf

 

[kum yin lau]

hi, gov general has been talking up rates but why Nov? Nothing has changed. The employment figures are still shaky I think. Holden just offloaded more workers.

Why fix what's not broken?

The other point is: the broader picture is the rest of the world. Our cash rate is low but which country has a cash rate higher?

It's the same old same old. When the differential gets too large, something has to change. Back in 08, all the analysts were tipping our rates to double digits. At that time, USA was dropping rates faster than rocks.

Most would be able to wear a half % rise so it doesn't mean very much anyway.

KY

 

[blaster]

Yeah to me it seems ludicrous that they could even be considering it and any rises now would also be coinciding with the wind back of handouts which would make the whole year pointless in the end .

But , they do seem to be warning us !

 

[MTR]

Hi All

This is an extract from Dymphna Boholt.
I am always keen to hear what she has to say.


"A couple of weeks ago I urged our good friend the RBA Governor, Mr Glenn Stevens to "just do it!"

What am I talking about?

Well, the INCREASE OF INTEREST RATES.

It looks now almost 99% that this will happen on guess what day..?

The first Tuesday of next month... which is Melbourne Cup Day.

I good time to lift rates - probably no one will notice that much and by the time they do, it'll be almost forgotten.

So why are they taking action on this?

The only reason I can see to lift rates is to kill off the surge in the property market which they and the government helped fuel 12 months ago anyway.

However, as an investor here's what I see...

Firstly, CONFIRMATION OF A PROPERTY BOOM in its early stages.

Secondly, confirmation of LIKELY INCREASES IN PRICES in the next 12-18 months of 10-15%".

Cheers, MTR

 

[Aaron Sice]

O
The banks would love to raise rates independently to increase their margins a little because for the most part their mortgages are only doing 20 % +_ ROI

ta
rolf

if they're leveraging and on-selling the debt, try for 200%....

i call a 0.25 increase to shock people into reality.

Melbourne Cup day? nah. I call christmas.

 

[Token Funder]

Hi All

This is an extract from Dymphna Boholt.
I am always keen to hear what she has to say.


"A couple of weeks ago I urged our good friend the RBA Governor, Mr Glenn Stevens to "just do it!"

What am I talking about?

Well, the INCREASE OF INTEREST RATES.

It looks now almost 99% that this will happen on guess what day..?

The first Tuesday of next month... which is Melbourne Cup Day.

I good time to lift rates - probably no one will notice that much and by the time they do, it'll be almost forgotten.

So why are they taking action on this?

The only reason I can see to lift rates is to kill off the surge in the property market which they and the government helped fuel 12 months ago anyway.

However, as an investor here's what I see...

Firstly, CONFIRMATION OF A PROPERTY BOOM in its early stages.

Secondly, confirmation of LIKELY INCREASES IN PRICES in the next 12-18 months of 10-15%".

Cheers, MTR

Dymphna Bolt brings to economics what George Foreman brings to ballroom dancing.

 

[Ausprop]

the economy would be performing much better than I realise for them to go down this path. it would be good news indeed

 

[Shadow]

The only reason I can see to lift rates is to kill off the surge in the property market

Lifting rates won't kill off the surge in the property market, at least not without a large lift (more than two percent). Remember we had much higher rates in 2007 while property was booming. It took mortgage rates of close to 10% and the threat of an impending financial crisis before the property market finally wobbled, briefly, in 2008.

So, no, lifting rates won't kill off the surge in the property market. What it will definitely kill is the business sector, and it will raise the dollar to levels that significantly impact our exporters. That's why a substantial increase in rates is off the table for now. We may get a token 0.25% sometime, but that's really all the RBA can risk. Even that seems unlikely for a while. Inflation is not a concern, being below the RBA target level.

 

[keithj]

Inflation is still above the RBAs preferred band -

2008 Q3 was 1.2%
2008 Q4 was 0.7%
2009 Q1 was 1.1%
2009 Q2 was 0.8%
2009 Q3 is expected to be 0.8%

If Q3 does come out at 0.8% it will give an annual rate of 3.5%, still stubbornly above the RBAs 2-3% range. As the recovery progresses inflation will rise. It takes several months for an IR change to flow through to the economy, the RBA is looking ahead at likely inflation in 6 months times. The current emergency setting is no longer required, rates must rise & quickly.

The market is expecting +0.25% in both Nov & Dec. A rate of 3.5% will still be expansionary. And it's possible that an early raise will be seen as a sign of confidence in the recovery ?

The upside is that if the RBA raises earlier, the likelihood is that it won't need to raise as much in this cycle.

 

[HiEquity]

The current emergency setting is no longer required, rates must rise & quickly.

Hi Keith

What do you expect will happen to the exchange rate in this scenario? And what impact do you expect that to have on our economy / exporters? I expect this to be a significant part of the RBA's deliberations. An ever widening gap between our IRs and the rest of the developed world will have an awful lot of side effects...

On inflation, the evidence shows this still reducing rather than increasing, as it would with our dollar doing what it is.

 

[sash]

Ditto Keith.....

I said around June/July that interest rates would go up at least once in Oct./Nov. 2009

My gut feel is that they might sneak one next week....so they can sit on their hands till Feb. 2009. This would play into the psyche of people's mindset...which is what the RBA wants to happen. If not Oct. ...I personally think Nov. is a definate.

Another reason why rates will rise is to contain as you have pointed out. What has moderated inflation is the rising $A. For example our imported goods are cheaper due to the strong dollar.....but we are nearly at the peak of this increase particularly if we hit parity with the $US.

By the dollar going up we also sell less manufactured good....so this may also assist somewhat in containing the total increase in rates.

Hope this makes senses.......

I am happy I fixed...despite people advising me in April, June, & August.....they are all under 5.74%. So I only need 2 rises to break even...any more I am in the money.

Inflation is still above the RBAs preferred band -

2008 Q3 was 1.2%
2008 Q4 was 0.7%
2009 Q1 was 1.1%
2009 Q2 was 0.8%
2009 Q3 is expected to be 0.8%

If Q3 does come out at 0.8% it will give an annual rate of 3.5%, still stubbornly above the RBAs 2-3% range. As the recovery progresses inflation will rise. It takes several months for an IR change to flow through to the economy, the RBA is looking ahead at likely inflation in 6 months times. The current emergency setting is no longer required, rates must rise & quickly.

The market is expecting +0.25% in both Nov & Dec. A rate of 3.5% will still be expansionary. And it's possible that an early raise will be seen as a sign of confidence in the recovery ?

The upside is that if the RBA raises earlier, the likelihood is that it won't need to raise as much in this cycle.

 

[keithj]

What do you expect will happen to the exchange rate in this scenario? And what impact do you expect that to have on our economy / exporters?

Hi HiEq,

Probably not much, I'd expect the rises to already be priced into the A$. I think exchange rates are particularly hard to forecast, but I'd have a wild guess that it'll remain around to 85-90c for the next couple of IR rises. The exports would suffer a little, the importers would benefit, and probably tend towards balancing each other out, so not a lot of effect.

I expect this to be a significant part of the RBA's deliberations. An ever widening gap between our IRs and the rest of the developed world will have an awful lot of side effects...

I differ. Our IR has been ~12 times higher than the US rate for a reasonable period - after 2 rises it'll be ~14 times higher. Towards the mid/end of 2010, the US & rest of world will be contemplating rises, so there may be an adverse effect for 6-9 months. The side effects are the collateral damage, caused by using a blunt instrument to keep the main problem of inflation in check.

On inflation, the evidence shows this still reducing rather than increasing, as it would with our dollar doing what it is.

Sure, it's tending down, but not as quickly as the RBA would like. They had forecast 3.25% by Q1 2010, but to achieve that would need an exceptionally low read for Q3 of this year. And the RBA is looking ahead, retail sales bounced strongly last month, consumer & business confidence are both high, jobs ads are rising slightly, these all indicate likely inflationary pressures ahead.

 

[MTR]

Dymphna Bolt brings to economics what George Foreman brings to ballroom dancing.

Maybe u need to raise the bar, do the homework on Dymphna ???

All the best Token. MTR

 

[Perth Investor]

KeithJ

According to this NSW state government website the annual inflation rate for Australia until 1Q 2009 was 2.5%.

I don't think inflation is above the target; I also think it is trending down; and I don't think the Reserve Bank gives two hoots about it right now.

I think they care about asset bubbles, and I think they can see some positive GDP numbers and that is their reason for increasing rates, or at least talking about it.

But that's just what I think.

http://www.business.nsw.gov.au/aboutnsw/climate/A13_ann_inflation.htm

 

[keithj]

According to this NSW state government website the annual inflation rate for Australia until 1Q 2009 was 2.5%.

You're right - inflation is 2.5%. However, the RBA uses a different inflation figures - the trimmed mean. It excludes the highest & lowest groups which shows inflation to June 2009 at 3.6% (ABS 6401.0 Table 10).